India's government has announced new measures to support the manufacturing sector and create jobs after the central bank said the country was set to enter a recession with estimates of another quarterly contraction.
India -- Asia's third-largest economy and home to 1.3 billion people -- has seen its economy badly hit by the coronavirus pandemic, with growth shrinking by a record 23.9 per cent between April and June.
"India has entered a technical recession in the first half of 2020-21 for the first time in its history," the Reserve Bank of India said.
The economy was estimated to contract by 8.6 per cent in the quarter ending September, resulting in a "technical recession" which occurs with two consecutive quarters of negative growth, the RBI said in its report released late Wednesday.
The International Monetary Fund said last month that India's economy would contract by 10.3 per cent for the year.
But Finance Minister Nirmala Sitharaman said Thursday the economy was now recovering strongly, pointing to global ratings agency Moody's revision of India's calendar year contraction to -8.9 per cent from its previous -9.6 per cent estimate.
"(It is) indicative of corrections happening in a positive direction," she told reporters in New Delhi.
The Reserve Bank also added in that the "contraction is ebbing with gradual normalisation in activities and expected to be short-lived".
The official GDP figures for July-September will be published on November 27.
Even before Prime Minister Narendra Modi announced a strict lockdown in late March, India's economy was already sluggish -- weighed down by record unemployment and a flurry of bad loans that made banks reluctant to lend.
Sitharaman announced some $27 billion in fresh measures to support the manufacturing sector and create jobs. They include incentives to produce goods and services locally, as well as benefits for foreign firms that invest in Indian firms.
They come on top of the $266 billion package announced by Prime Minister Narendra Modi in May to revive the stuttering economy.
The RBI economists however warned that households were still facing financial stress.
"Stress intensifying among households and corporations that has been delayed but not mitigated, and could spill over into the financial sector," they wrote in the report.
Independent Mumbai-based economist Ashutosh Datar told AFP: "The recession is historically unprecedented because of its magnitude of the fall, so we are looking at a full-year decline of -5 to -10 per cent.
"Another aspect that is crucial is the economy is much bigger now and India has global linkages, which was not the case previously before the (economic) liberalisation of 1991."
